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  3. Bringing down subsidies to proposed 2% level may be difficult: FICCI

Bringing down subsidies to proposed 2% level may be difficult: FICCI

27 Mar 2012 Evaluate

Bringing down the subsidies to 2% or below that may be a difficult task for the government, cited a FICCI panel in a report. Since government has not clarified the roadmap to cut down the subsidy level from current 2.4%.

FICCI had partnered with Friedric Ebert Stiftung (FES) in a post-budget interaction on a wide range of subjects such as government expenditure, subsidies, fiscal deficit etc. As per the panel estimates, the implementation of food security bill will alone amount to a minimum of 0.7% of GDP and could be as high as 1.5 % given the government estimate of Rs 1.12 lakh crore. Moreover there has been no clear word on the deregulation of fuel prices, especially diesel. Hence the task of lowering subsidies appears tough.

On fiscal deficit, the panel has stated that over the medium term, the government hopes to bring down fiscal deficit further and has targeted a reduction to 4.5% by FY2014 and 3.9% by FY2015. However it has criticized the budget for not incentivizing growth.

The Finance Minister, Pranab Mukherjee presented the Union Budget on March 16, in which he stated that the government would try and contain subsidies at a 2% level in the next fiscal. However questions were raised about the viability of the target given the fact that the government is keen to implement the Food Secutity Bill by the end of the year. Moreover there have been no provisions in the budget to increase revenue except for hiking of service tax and excise duty, whose collections will not be enough to offset the expenditure on the Food Security Bill. However, recently the government has been hinting at a reduction in fuel subsidies.

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